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2020 lookout for value added services

According to Oliver Johnson, CEO of Point Topic, Consumer Value Added Services (VAS) Revenues are to Triple to $420 Billion in 2020. Wow! Tripling in 10 years is a compound annual growth rate of about 14%.

Johnson used the following graphic during a presentation at CommunicAsia 2012 earlier this week:

Point Topc's take on 2020 VAS revenues

 Source Point Topic (CommunicAsia 2012)

Who wouldn’t want to operate within such an industry?

That got me thinking, who indeed?

Much of what makes up these VAS aren’t yet in the scope of global juggernauts Apple & Google. On the contrary, all seem to be very Network operator centric.

So why then are my friends at major European Telcos so gloomy?

Point Topic have looked at current VAS and projected them to 2020. That’s a good approach to get an idea of market size, but doesn’t show who’ll be selling the services by 2020 i.e. in an IP lifetime.

Let’s run through Point Topic’s 8 VAS:

1. IPTV – this may still be Telco’s exclusive hunting ground but as I just wrote in a white paper, IPTV is being complemented with OTT. By 2020 there will be no distinction between IPT & OTT. If Google and Apple take too long to get their TV acts together the Netflix’ of the world will have carved out a big piece of this pie for themselves. Otherwise for Telcos to stand a chance of staying on top of this market, they’ll need the support of regulators and crazy laws like ACTA to exterminate what’s left of Net Neutrality.

2. VoIP – again what could be construed as Telco hunting ground, is already dominated globally by the likes of Skype so isn’t voice is destined to become free? I asked Point Topic to explain why they see so much VoIP revenue in 2020. Oliver told me “VoIP currently has the largest share of fixed line consumer VAS & will still grow slowly (see chart).” So what about free VoIP? “While operators are offering free VoIP, it’s often only free to other VoIP connections and sometimes only to users on the same ISP. There are still going to be plenty of calls to mobile and standard fixed phones and along with those ISPs that do charge for VoIP as part of a bundle this still adds up to a pretty good revenue stream”.

3. Gaming – Gaming is classified as just another VAS, but this industry obeys its own complex rules. Most gaming industry pundits believe that the big editors like EA or Valve will lose out to more innovative smaller outfits. Operators have been trying to capture some of the value here for over a decade. I don’t see why they should be any more successful in the future than in the past.

4. Music downloads – I’m surprised that this market is still seen as existing by Point Topic. At the last party with dancing, that I went to, people asked for a Deezer connection to play their songs, rather than hooking up their iPhone. To justify downloading, the size of files must be large relative to available bandwidth. If there are say, stereoscopic 4k videos in 2020, then maybe video downloading will still exist, but I don’t see how downloading will remain relevant for sound files in 2020. So if this revenue is generated from streaming, then network operators might just scrounge the scraps, with the lion’s share of this market remaining with service providers like iTunes or Spotify.
So I asked Point Topic why they kept this segment until 2020. Oliver answered: “streaming will become more popular, but it can still be patchy. Unless you want to use your mobile bandwidth while out of reach of free WI-FI, or eat your much larger fixed allowance then just for efficiency’s sake, users will want to download once and share that file amongst their devices. Memory/disk space if just cheaper and more reliable than having to be in the cloud the whole time. In addition we still retain the desire to 'own' something, even if it's bits on your disk drive, having something to hand is more convenient and more desirable. Just look at the Megaupload case to see what can happen to your data if you trust it to someone else.”
That’s where I beg to differ, because I think connectivity will be so much better and even more ubiquitous in 2020.

5. Security – I have no doubt that there will be a gold rush on this market. Of course anyone selling spades will make a fortune, but beyond the obvious B2B market, the jury is still out as to whether the public at large will spend significant budget on remote sensors, cameras, and the like. If the segment were to include home automation, it might stand a better chance. But it’s still a level playing field so anyone could come out on top.

6. Home networks – this is a new frontier, which I’m excited about. People are in pain and we don’t even know how to start fixing their problems. Part of the solution will include more robust and simple networking technologies, some monitoring and helpdesk services, content discovery and DLNA approaches to in-house content sharing. But if home networking can’t be made easy very soon, it may never make it as a mass market, because the Cloud is already here...

7. File transfer / cloud – I would have guessed this would be the big one in a 2020 market. Watching Dropbox make an impact in both business and consumer segments in parallel shows that there is a clear demand here. In an 8-year window I could easily imagine the descendants of Dropbox taking a slice out of whatever I’m willing to pay for access to content. Amazon seams to believe in the link between hosting services and the content therein. The experts at Point Topic have plotted a line based on today’s typical file transfer service. Again I have no issue with the method to get to a market size, but this is an area where services in 8 years will be so very different, that it probably doesn’t mean much anymore.

8. Teleworking – Teleworking was always going to be so very important so very soon. The technology has actually been available for many years. The success or otherwise of teleworking will now be driven by what is socially and / or professionally acceptable in terms of behaviour and work ethics more than by any new service or technology. So I see no reason for the tiny size or the stakeholders of the Teleworking market to change over what is - for social change - a short period of time.

You can see Point Topic’s press release here.



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The Connected Home is almost here, not quite

The exhibition
For once got to see all that was on show in the booths as there were four to visit. This was surprising as the show is already in its third year, but also gave a feel of being part of a closely guarded secret

Motorola was showing their 4HOME acquisition of October last year. This is a software platform for service providers including energy companies. The service provides a home-control and monitoring platform residing in the cloud.
The message to telecoms operators is that as VOiP is commoditized, this approach can add value. This idea was echoed during the conference by the Telco speakers like Ann Shaub of Verizon.
Use cases revolve around triggering cameras and door locks for example to let delivery man in or check if the kids haven’t left the lights on or have they arrived home after school.
4Home call this “assisted living” and hope to improve energy management. The platform’s concept is to create “scenes”, like going-to-bed or watching-a-movie.
4Home claim their Unique Selling Point is being able to link the scenes.
The demo on site was of an extremely basic Web interface to create such scenes. Clearly such a system can be useful, but needs to be integrated into an overall offering to really shine. I expect the Moto execs will get some compelling bundles together from their portfolio.

I was surprised to see T&W in another of the sparse booths. They are a Chinese hardware manufacturer of CPL, modems and the like, founded in 1991, they expect a 600M$ turnover for 2011. They have 7000 employees, 1000 of which are engineers. They were showing optical stuff: GPON (mainly for Europe), EPON (for Asia) and what they called point2point (for the connection to the home, to “replace last mile”), but their core business in DSL routers (over 20M units shipped per year). The message I got out of talking to them was that optical is the future I suppose this message comes from DSL margins having been commoditized to smithereens.

Twonky has a far sexier name than anyone else on the show and I had never seen a booth with quite so many goodies on display, but they didn’t give me much in the end. Twonky is a US company with development teams in Berlin and a presence in Basel & Tampere, they are the part of Packet video that Alcatel Lucent strangely didn’t buy almost a decade ago. They now belong to NTT DoCoMo. To position their home connectivity products, think of them as competing with Awox that I have written about a few times.
Like Awox, they are DLNA zealots and have software in the field. Western-Digital Media players constitute their largest installed base. They also equip some routers but they came to the show to target operators of all shapes & sizes.
I was impressed with Leon Chicheporte’s honesty when I told him about the inconclusive DLNA tests I had done in my home (see here). He said that 2 years ago we were only half way to usability for the end user, and that now we’re almost there. Note the ‘almost’. That kind of honesty makes me want to do business with a supplier.

3view is a new kid on the block in the STB-with-a-service-behind-it neighbourhood. Founded in 2009 and running out of central London, they are still independent and run off private funds.
They claim to be the 1st Z-wave enabled STB. The platform runs on the SD8655 chipset with a 500GB HD and twin DVB-T2 tuners. In the UK they are a consumer brand that deliver a YouView experience before YouView is ready, competing with the likes of FetchTV. The motto on the booth was just three words: Watch, Search and Interact which I thought was pretty slick marketing although I didn’t get a chance to check if they deliver on the promise.
The BBC iPlayer is already on board and they plan to have SkyPlayer by Q3 this year. Adaptive Bitrate Rate is supported over IP. Current retail price is £299 and the device has been shipping since Christmas from John Lewis and Amazon. They can deliver a white-label box to this spec for a BOM (Bill of Materials) of around £170.

The conference

I listened in to almost all of day one of this two-day conference and tweeted live from my @nebul2 account. The conference gave me the impression that we may not have peaked yet on the hype cycle i.e. there might still be more hype before this becomes really real. We also still need some more convincing use-cases to see the true value of a connected home.

Operators are taking the connected home seriously. It’s another way to avoid commoditization especially where content-based services are not delivering. Energy control is a promising feature for Verizon. It helps the operator onto the feel-good green bandwagon. But Ann Shaub underwhelmed me with the use-cases Verizon is working on for home automation. Her favourite was “Sleep mode” where you “just hit one switch for all doors to be locked and lights turned off, no more fumbling around in the dark…”. It sounded a bit like using a sledge-hammer to push a drawing pin into a soft wall. She did however make excellent business sense when pointing out that STBs are still very expensive and difficult to keep relevant over the full (accounting) lifespan of the device. Convergence between the STB and other devices still remains to be clarified.
Ann went on to tell us the key marketing messages for Verizon’s connected home initiative: it’s about “Peace of mind” & “ease of use” and not about “saving money”. The current pricing model is a $9,95 subscription with devices being slightly subsidised. Verizon doesn’t want to get into CPE business. The current trial will turn into a soft launch very soon, with a hard launch still a bit further away.

Paul Berriman, the industry veteran from PCCW in Hong Kong, gave a broad talk about the overall strategy there. The journey from Fixed line to TV to PC to Mobile phones to Tablets & Games consoles now has to go through the connected home so as to get it all to work together. I agree when he says that getting all the devices to interoperate is going to be a real challenge, but that interoperability will become a USP once it does work. He spoke of a special focus at PCCW on enabling the free flow of content throughout the home but I think that may still be out of reach for premium content as rights owners stay too picky on DRM. “NOW 360” tries to capture ALL the screen usages of PCCW customers whatever the screen. Paul finished with one of those simple “why didn’t I think of that?” questions: health has been targeted BY operators for years and they have already spent a lot on it, but as fitness requires the same kind of infrastructure and has an early-adopter target market to boot, why not start there? Makes sense, so maybe will see Runkeeper types of apps from operators …

The conference organisers then did a strange thing. A video of a presentation from IPTVWF a few months ago was shown. In the audience we all looked at each other wondering what was going on. I doubt anyone listened to much of the Telecom New Zealand presentation, we were so bemused by this strange process. I am green, but this was pushing recycling too far.

Raoul Wijgergangs of Sigma Designs came on next to say that the key to the connected home is already here in the form of the standard. He promised products with a bandwidth 2,5 times faster than today’s HomeplugAV, before the end of the year. The prototype devices he showed looked so small that even if the STB remains part of the ecosystem we’ll have to stop calling it a box. I agree with his view that home automation is the “low-hanging fruit” of the connected home, but I wish he’d told us what SD think lies on the higher branches, out of sight.

Thomas Kleist of Native made an interesting point during the next panel session: exclusivity is an OK entry point for operators, but over time openness (i.e. apps) will be the winning strategy.
On the same panel Steve Koenig of the CE Association in the US illustrated how energy is creeping into CE purchasing decisions (85% of buyers care about it compared to 95% for price & only 57% for brand). He went on to say that Americans are driven to reduce energy consumption only because of cost. Doh! That got me wondering if taxing energy, as we do in parts of Europe, will slow down the connected home…

The next panel on "Monetizing the digitized home" had just 2 panellists, which poses the question of whether the subject is addressable yet. Swisscom was pessimistic on the connected home business model because the telecoms budget is fixed for most homes, so revenues has to come out of an existing spend. The question is what’s going to give?
As a vendor, Twonky was much more upbeat on the connected home’s business prospects, pointing out that as the TV will remain the best screen, and other devices will always be better for interaction, the secret to raising ARPU will be linking these two champions CQFD.

Tim Wright, one of the two Sony speakers, told the conference that the Ultraviolet common file format (CFF) contributes to interoperability within connected home and is complementary to DLNA. He made the case that this new industry initiative will reduce costs and not increase them for operators. I have yet to witness anything from the security industry reducing costs, but I do live in hope.

We then moved on to standards for the connected home. Rami Amit from Jungo was refreshingly honest in stating that DLNA streamers almost work, but not quite yet. Guilhem Poussot of Vodafone said that the next decade is going to be about user experience. When prompted from the audience about “whether standards are for losers” he boldly retorted that standards are for winners and in any case we have to beat Apple.
Another issue raised from the audience was on the openness of standards "the more open a standard, the easier it is to hack, so do we want an open standard in the living room at all?” When the chairman pushed even further by asking the panel if he’d ever get a virus on his TV, the question was politely ignored.
Helen Anders, a lawyer on the panel, reminded us that there have ALWAYS been competing standards like Beetamax vs. VHS, and she saw no reason that this will be any different for the connected home.
On the down side for standards Roger Blakeway of the SCTE couldn’t see Sky moving away from their box to any kind of open system.
This pessimism was countered by Sony’s Renaud Di Francesco who said that barriers put up by operators would soon be overcome by Wifi or LTE or some other pervasive technology.
Karl Tempest Mitchel from AirTies seemed less committal stating that the jury is still out as to which one it’ll be, but that one device will control content in the home.

Andrew Ladbrook an Informa analyst closed day one with some figures from the latest study on the connected home that he urged us to buy.
Games consoles will not grow as fast as Connected TV or Blueray, although they will become mainstream and be VERY connected (contrary to connectable Blu-ray that will most often not be connected in the home). Informa believes that Media-streamers à la Apple TV will remain niche.
Ladbrook made an interesting and controversial point on "Video not needing QoS" as seen by OTT boxes like those from Telstra (Netgem) or Telecom Italia (Cubovision) that he says are doing fine. Less QoS means less CAPEX & less OPEX. I’m not sure if this is linked to the connected home debate, but we’ll be seeing very soon if this strategy pans out over more than a quarter or two.
Informa wrapped up with some strategic advice, on defensive opportunities with multi-room offerings that enable connected home and reduce churn towards OTT providers. He finished by suggesting that the next-best defensive opportunity is improving home networking because that too enables the connected home as seen by Apple’s Airplay.

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Q: Is DLNA ready for living-room action? A: Almost.

This afternoon I was to prepare tonight’s Indian meal and decided to put on some music. I like it nice and loud perhaps as a reminder of my teenage years or maybe because past 40 hearing drops, who knows. Anyway I was alone at home so the time was right.

My new Bravia 5500 series TV is hooked up to the stereo system with an HDMI cable and connected to my home network. An Apple Time-Capsule acts as an Ethernet hub for all my sitting room devices (TV, BlueRay, multimedia hard disk, PC’s). The family Vista PC with the MP3 collection was switched-on so I decided to try and listen through the TV. I’d seen demos at shows, checked I could do it myself when I got the TV six months ago, but this time it was to actually listen to music rather than play with technology.

The whole operation took about twenty seconds and lo and behold everything worked first time.

I hit the big ‘Home’ button on the Sony TV remote, scrolled to the ‘music ‘ section, and bingo: the PC appeared. So I selected it and started playing the first MP3 I came across. It was a Mozart piano concerto and sounded brilliant.

With my wife and three kids adding to the collection, there are tens of thousands of files of absolutely every kind of music imaginable. The DLNA client on the TV found its way to the root of the music collection that is managed by iTunes on the PC. I could navigate by genre (with the typical issues like having to choose between ‘classical’ or ‘classique’ as we live in France) or by subdirectory. In this case it’s a matter of luck with some explicit names, but many meaningless ones.

I wanted to listen randomly to titles and found that option on the TV. It seemed a shame not to use the 46” screen with its 1920*1080 resolution, so tried to get a slide show of family photos to display at the same time.

I selected the current music as background and used the TV remote to navigate to my photos (again simply pressing the ‘home’ button).
I selected ‘all photos’ and got the slide show working. As the default setting must be file date I got stuck watching our oldest digital family photos I’d forgotten about.

I was now getting a bit behind schedule for the dinner party preparations.
The Mozart piece I’d selected lasted about 20 minutes, so after that time I realised that I was not getting what I wanted, namely to watch my photos and listen to my music.

One can only set one piece to accompany a slide show and there’s no option (yet) to have a slide show accompany music (which was actually my state of mind).

So I gave up on the music and decided to satisfy myself with the photos alone. But as the photos were in chronological order, I soon ran out of the small 200Kb files from the very early digital cameras. As I got to a more current 3MB file size, the loading times became unusable at about half a minute. I presume the TV’s chipset is a bit underpowered for high-res photos. I haven’t and don’t want to investigate the technicalities of this slowdown. I just want it to work.

Another limitation was that you can either see the whole picture, in which case part of the screen isn’t used as the camera uses different aspect ratio or have the photofit the screen exactly by being cropped. Mac and PC based photo software has got us used to much nicer solutions with the best of both worlds were photos either scroll across the screen or zoom out so you can see all of them.

My initial feeling of elation at how it all worked was waning so I went back to the music and got the tandoori paste around the chicken in time (oh and btw I usually just grilled the meat, this time I tried slow cooking in the oven wrapped in silver foil, follow by a quick grill on one side to dry and brown it – it was much more succulent than usual).
So my tupence worth from this mixed experience is:

• DLNA already works in the living room, not just on trade show demos
• You need a powerful device to manage big files or HD and current TV for example don’t yet pack enough oompf
• The embed software on TV’s just isn’t user friendly enough

I am left with the feeling that there still is room for various flavours of set-top-box technology to flourish, including an Apple TV or a PC under the TV. But I wonder how long for until the set-makers get it right.

(This blog was first published on Videonet